Serbia: Construction

Serbia is a civil law jurisdiction.

The main source of imperative requirements when it comes to construction and engineering projects in Serbia is the Serbian Planning and Building Act.

Apart from Serbian Planning and Building Act there are other acts which regulate construction activities relating health and safety, employment, communal and sanitary obligations, environmental protection, etc. These are Serbian Act on Health and Safety at Work, Serbian Employment Act, Serbian Waste Management Act, Serbian Act on Waters, Serbian Act on Environmental Protection. In addition, there are several especially important bylaws which further specify statutory obligations foreseen in the mentioned acts, such as: Serbian Regulation on Health and Safety at Work on Temporary or Mobile Construction Sites; Serbian Regulation on the Method of Providing First Aid, the Types of Tools and Equipment that Must be Provided at the Workplace, the Method, and Deadlines of the Training of Employees for Providing First Aid; Serbian Rulebook on the Content of the Elaborate on the Arrangement of the Construction Site; Serbian Rulebook on the Content and Method of Keeping the Inspection Book, the Construction Diary, and the Construction Book; Serbian Rulebook on Protection at Work when Performing Construction Works; Serbian Rulebook on Providing Labels for Safety and/or Health at Work.

Taking all the abovementioned legal sources into account, we can identify the following key statutory obligations relevant to construction and engineering projects:

• Conclusion of Construction contract which shall be concluded in writing (this demand is not foreseen when it is about the Design/Engineering contract).
• Obligations relating documentary pre-requirements, such as: obtaining of the site conditions and subsequently the building permit.
• Notice of works – The investor must submit a notice of works to the authority that issued the building permit before the commencement of execution of works.
• Obligations relating keeping of documents during the works, such as: construction diary, construction book, and inspection book.
• Obligations relating employment, among which, having valid employment contracts and securing work conditions in accordance with the Serbian Employment Act and existing collective agreements.
• Providing health and safety measures on the construction site in accordance with the law and relevant mentioned bylaws.
• Providing measures for protection of environment in accordance with the law and relevant mentioned bylaws.
• Payment obligations in commercial transactions as a general principle, shall be fulfilled within the timeframe of 60 days.
• Designer, the contractor, and professional supervision are obliged to secure professional liability insurance (for legal persons insured amount is EUR 50.000,00 and for entrepreneurs it is EUR 15.000,00).

Application of health and safety measures on construction sites is mainly governed by the Serbian Rulebook on Protection at Work when Performing Construction Works which prescribes special measures and safety norms that are applied during construction works.

Apart from the mentioned Rulebook, one has to also consider the Serbian Rulebook on Providing Labels for Safety and/or Health at Work under which employer of manpower is obliged to:

• take into account the risk assessment, provide and highlight signs for safety and/or health at work where the risk, i.e., dangers and harms could not be eliminated or reduced by the application of safety and health measures at work.
• provide employees and/or their representatives for safety and health at work with all information related to safety and/or health at work, especially about the measures taken in connection with the provision of signs for safety and/or health at work.
• during the training for safe and healthy work, the employer is obliged to familiarize the employees with all the measures taken in connection with the provision of signs for safety and/or health at work and to provide them with instructions or instructions in written form that refer to the mandatory methods of handling and the meaning of occupational safety and/or health signs, and in particular the meaning of occupational safety and/or health signs containing words.
• the employer and employees, or their safety and health representatives, are obliged to cooperate in all matters related to the provision of occupational safety and/or health markings.

Further, Under the Serbian Regulation on the Method of Providing First Aid, the Types of Tools and Equipment that Must be Provided at the Workplace, the Method and Deadlines of the Training of Employees for Providing First Aid, the employer of manpower is obliged to ensure the provision of first aid, to train the appropriate number of employees for the provision of first aid and to provide means and equipment for the provision of first aid, taking into account the assessed risks, the technological process, the organization, the nature and scope of the work process, the number of employees participating in the process of work, number of work shifts, number of geographically separated units, frequency of injuries at work and distance to the nearest medical aid.

There is also, Serbian Regulation on Health and Safety at Work on Temporary or Mobile Construction Sites regulation which prescribes the minimum requirements that the investor, i.e. the investor’s representative for the implementation of the project, the occupational safety and health coordinator in the project development phase, the occupational safety and health coordinator in the construction phase, the employer and other persons are obliged to fulfil in ensuring the application of preventive measures at temporary or mobile construction sites.

The rules contained in the spatial plan of the special purpose area, the spatial plan of the local self-government unit and urban plans which are regulated in the Serbian Planning and Building Act contain, among other, measures for environment protection. Also, location conditions which obtaining falls under Investor`s scope of obligations before the works commence, also contain data on whether it is necessary to initiate the procedure of obtaining consent for the environmental impact assessment study, i.e., the decision that the preparation of such a study is not required, which the competent authority obtains through a unified procedure from the ministry responsible for environmental affairs.

In addition, the technical control of the project for the construction permit includes, in particular, the inspection of the impact on the environment and neighbouring facilities. This inspection is also within rights and duties of a construction inspector. This is also foreseen in the Serbian Planning and Building Act which needs to be in line with laws and regulations that regulate environmental protection among which the most exhaustive in this field is the Serbian Act on Environmental Protection.

Before commencement of construction, Investor needs to prepare a document named the “conceptual design” that represents the presentation of the planned concept of the object, which is prepared for the purposes of obtaining location conditions and can also be part of the urban project for the purposes of urban-architectural development of the location in accordance with the regulation that regulates the content of technical documentation. This is foreseen in the Serbian Planning and Building Act.

The conceptual design shows only the data necessary for the issuance of location conditions, that is, the data necessary for determining compliance with the planning document, without elaboration of technical solutions. Along with the request for the issuance of location conditions, a conceptual solution of the future building, that is, a part of the building (sketch, drawing, graphic representation, etc.) is submitted, prepared in accordance with the rulebook that more closely regulates the content of technical documentation.

Employers need to engage workers in accordance with the Serbian Employment Act, as well as any existing collective agreement in force (concluded between unions of workers on one side and employers` union on the other) and employment contract concluded with each employee. The hierarchy of these acts needs to be respected in the way that each employment contract is in line with an existing collective agreement and, at the top of the hierarchy, the Serbian Employment Act.

Forms of employment engagement relevant to the construction projects which are recognized by the Serbian Employment Act are: Employment contract concluded for definite or indefinite period of time (which may include the possibility of probation work – lasts for a maximum of 6 months), service contracts/purchase order contracts, contract on vocational training and internship, contracts for temporary and periodical jobs, contracts for supplementary work .

In the Serbian Act on the Prevention of Corruption the term “corruption” is defined as a relationship arising from the use of an official or social position or influence in order to obtain an illegal benefit for oneself or another.

Bribery in commercial activity is particularly incriminated in the Serbian Criminal Code. The definition of the criminal act of bribery is as follows: “Whoever, while performing an economic activity for himself or another, directly or indirectly, demands or receives a gift or other benefit or who receives a promise of a gift or other benefit to conclude a contract or reach a business agreement or provide a service or to refrain from such action or in violation of other duties in the performance of economic activity to the detriment or benefit of the business entity or other legal entity for which or in which he works or another person”. Within the meaning of the Code bribery is also committed, when the person who commits bribery as herein defined, concludes a contract, or reach a business agreement or after providing a service or refraining from such an action, for himself or another, requests or receives a gift or other benefit or accepts the promise of a gift or other benefit.

Bribery could be sentenced with up to 8 years in prison.

Investor or other authorized person submits the to The Ministry responsible for construction affairs or the competent authority of the autonomous province or the competent authority of the local self-government, a request for issuance of the location conditions. This is how the so called “Unified Procedure in Proceedings for the Issuance of Decisions in the Exercise of the Right to Development and Use of Facilities” is instigated. Also, a legal person or sole trader which carries out the activities of preparation of planning documents, i.e., which is executing works, carries out the professional supervision or technical control, needs to be insured against liability for damage that may be caused to the other party, i.e., to a third party (professional liability insurance). In this unified procedure, Investor obtains the following key documents needed for commencement and carrying out a construction:

• Site conditions
• Building permit
• Notice of Works
• Usage permit

Other key documents needed during implementation of a construction project are:

• Construction diary,
• Construction book,
• Inspection book,
• Employment contracts,
• technical documentation according to which the construction permit was issued

Also, a legal person or sole trader which carries out the activities of preparation of planning documents, i.e., which is executing works, carries out the professional supervision or technical control, needs to be insured against liability for damage that may be caused to the other party, i.e., to a third party (professional liability insurance).

Not keeping the required documents is considered as misdemeanour or economic offence. There are both fines, and imprisonment foreseen as sanctions and there are different types depending on the misdemeanour or economic offence.

Failure to keep construction book, construction diary or inspection book is a misdemeanour and can be sanctioned with a fine spanning from 500,000 to 1,000,000 Serbian dinars.

A company or other legal entity that builds a building will be fined from 1,500,000 to 3,000,000 Serbian dinars for an economic offense if it builds a building without a building permit, i.e., performs works contrary to the technical documentation on the basis of which the building is being built.

A fine ranging from 600,000 to 1,500,000 Serbian dinars shall be imposed on the employer with the status of a legal person if such an employer violates the prohibition of discrimination under this Act.

A fine ranging from 500,000 to 2,000,000 Serbian dinars shall be imposed for the misdemeanour on a company or other legal person that performs tasks of preparation and control of technical documentation, i.e., which is a contractor, an entity conducting expert supervision or technical inspection, if it is not insured against liability for damage.

A fine ranging from 100,000 to 150,000 Serbian dinars or imprisonment of up to 30 days shall be imposed for the misdemeanour on the responsible designer who has prepared and signed the technical document or verified such document in the procedure of technical control, contrary to provisions of this the Serbian Planning and Building Act and secondary legislation passed on the basis of this Act.

Yes, and these are exhaustively regulated in the Serbian Law on Contracts and Torts.

Investor (Client/Employer), Contractor, Subcontractor(s), designer, equipment provider, a professional supervisor, health & safety coordinator.

When it comes to public procurement, the following methods are foreseen in the Serbian Law on Public Procurement:

• open procedure
• restricted procedure
• competitive procedure with negotiations
• competitive dialogue
• negotiated procedure with publication of the contract notice
• innovation partnership
• negotiated procedure without publication of the contract notice.

Most commonly used public procurement procedure in Serbia is, by far, the open procedure and it is also the simplest one. Open procedure is a procedure wherein all interested “economic operators” (legal term) may submit tenders.

In respect of non-public procurements, it depends on clients and their demands, but in general it is based on direct “B2B” method.

In domestic projects, there are no standard forms that could be targeted as commonly used. When it comes to domestic projects where state entities are involved, these entities use some types of their standard contract models which are different among each other, dependent on the type of project and government entities involved. However, it can be concluded that FIDIC standard contracts are often used in international construction projects in Serbia, particularly under the foreign investment projects. When FIDIC is used on the project it is often amended by specific contractual provisions.

Yes, there are, and these are regulated in the Serbian Law on Public Procurement.

As foreseen in this Law (arts. 11 and 12), its provisions do not apply to public procurements and design contests that contracting authorities/entities are obliged to conduct in accordance with the procurement procedures established:

• under an international agreement or other act pursuant to which an international law obligation was created, and which is concluded by the Republic of Serbia with one or more third countries or their inner political-territorial units, and relating to supplies, services or works intended for joint use or exploitation by the signatories;
• by international organisations.
• The provisions of this Law do not apply to public procurements and design contests which are conducted pursuant to the procurement rules set forth by an international organisation or an international financial institution, provided that such organisation or institution fully finances concerned procurements and design contests.
• In the case of procurements and design contests referred to in the bullet above are co-financed for the most part by an international organisation or financial institution, the rules as stipulated shall be applied.
• A third country, in terms of the first bullet above , is any state not a member state of the European Union, and, by the time the Republic of Serbia acceded to the European Union, it is also a member state of the European Union.

Additionally, governmental/state owned contracting authorities/entities shall not apply the provisions of the Serbian Law on Public Procurement to:

• acquisition and rental of land, existing construction facilities and other immovable property, and the concerning rights thereon;
• acquisition of time for the television or radio broadcasting, or time for broadcasting programme material, from the media service provider;
• arbitration and conciliation services;
• legal services, as follows:

1. legal representation of contracting authority/entity by a lawyer in the procedure of arbitration or conciliation, in the country or abroad, and before an international arbitration or international conciliation instance;
2. legal representation of contracting authority/entity by a lawyer in judicial proceedings and other procedures before the courts or other public authorities, in the country or abroad, or before international courts, tribunals or institutions;
3. services of legal advice by a lawyer given in preparation for legal representation in the proceedings referred to in sub-points (1) and (2) above or where there is a tangible indication or high probability that the matter to which the advice relates would become the subject of such proceedings;
4. legal services provided by legal representatives or guardians, or other legal services the providers of which are designated by a court or are designated by virtue of law to carry out specific tasks under the supervision of courts;
5. other legal services which are connected, even if occasionally, with the exercise of official authority;

• services of document certification and authentication provided by notaries;
• financial services in connection with the issue, sale, purchase or transfer of securities or other financial instruments within the meaning of the law governing the capital market, as well as Support for further improvement of Public Procurement system in Serbia Gračanička 8 11000 Belgrade activities carried out within the European Financial Stability Facility and European Stability Mechanism;
• loans, whether or not in connection with the issue, sale, purchase or transfer of securities or other financial instruments;
• contracts concluded in accordance with the provisions of the law regulating rights, obligations and responsibilities arising from employment, or on the basis of employment except piece work contracts;
• certain services of civil defence, civil protection and services of danger prevention, that are provided by non-profit organisations or associations,;
• services of passenger transport by rail or metro;
• procurements from the contracting authorities/entities or groups of contracting authorities/entities that are exclusive right holders, on the basis of which they only can perform a particular activity in a particular geographical area and which are granted by or are deriving from law or sub-legal act;
• certain research and development services, except where the subject-matter of the public procurement are research and development services provided that both of the following conditions are met:

1. the benefits accrue exclusively to the contracting authority/entity, that is, they are intended exclusively for its use and conduct of its own affairs, and
2. the contracting authority/entity fully finances these services.

Yes, it is common for parties to engage consultants especially legal, financial and tax consultancy services. Moreover, it is customary to engage also a technical consultant who provides consultancy in connection to regulation applicable to designing, building, licencing and similar. Regarding this technical consultancy, on larger and more complex construction projects, it is also common to rely on FIDIC White Book which is used as a model agreement for technical consultancy services.

In addition, lawyers alongside the mentioned technical support provide services for contract and claim management so the rights of contractors would be protected from damages especially when project is based on FIDFIC conditions of contract. These conditions usually provide for very strict and preclusive deadlines for notification of the claims that contractors wish to place. It is one of the most controversial issues in construction law practice if such kind of deadlines for submission of notice of claim is valid and applicable.

In principle the subcontracting is permitted, meaning there are no statutory impediments to subcontracting. Due to this principle, subcontracting is widely used in construction projects in Serbia. The Law on Contracts and Torts explicitly provides that “unless something else results from the contract or the nature of the job, the supplier shall not be bound to perform the job personally.” It means that the subcontracting may be explicitly excluded via contractual provision, but this exclusion can be assumed where the contract has the nature of an intuitu personae contract.

Market practice shows that subcontracting in construction is usually accompanied by back-to-back clauses which contractors impose on subcontractors in order to transfer the rights and obligations from their contract with the employer. This contracting technique is used to protect contractor from subcontractor’s claims that are not justified from the perspective of the main contract. One of the most used back-to-back clauses is the one dealing with payment, providing that the subcontractor shall be paid only if and when the contractor gets its payment from the employer. These clauses are very cumbersome to the subcontractors and are very often challenged. First, there is a mandatory rule prohibiting contracting payment deadlines longer than 60 days and subcontractors use this mandatory provision to claim that delay of the payment or delay of the moment when the payment is due is not in accordance with the Serbian law. Further, back-to-back clauses could be challenged if the contractor does not use its right towards the employer where this passive behaviour results with damage only on subcontractor’s end.

On the other hand, Serbian Law on Contracts and Torts provides a possibility for the subcontractor to claim the certified amounts that are due to him for the executed subcontractor works directly from the employer. This opportunity is rarely used but can represent a very efficient protection of the subcontractors.

The Serbian Law on Public Procurement allows the bidders to state in their offer that the works will be subcontracted. However, later during the contract execution, this law forbids contractor from introducing one or more new subcontractors if their total share would exceed 30% of value of the public procurement contract without the value added tax, regardless of whether a part of the public procurement contract has, or has not been, initially subcontracted to the subcontractor.

For domestic projects financed from the entities of public sector financing is carried out from the budget of the Republic of Serbia, self-government units or autonomous provinces.

When it comes to foreign investment projects, financing comes from various sources such as European Investment Bank, World Bank, KfW Development Bank, UNDP and similar organisations.

In commercial projects such as real-estate sector, financing goes either through own financing or through domestic commercial banks.

Typical means of security in construction contracts in Serbia are guarantees in form of promissory notes or bank guaranties either for advance payment, proper performance, and defects notification. In addition to this, employer may seek from the contractor retention of the certain percentage of money certified for payment in the interim payment certificates.

In respect of bank guarantees, it is common practice that the guarantees should be issued as “irrevocable”, “unconditional”, and “payable at first demand” and “without objection”. Also it is usual to have such instruments regulated by URDG 758 rules

For promissory notes, standard practice for advance payment and/or performance guarantees, is contracting issuance of blank, single promissory note(s), to be issued immediately after signing of a contract. The promissory note must be signed by an authorized person and certified with the seal of a contractor (if the contractor opted for use of seal). Along with the promissory notes, a contractor submits a properly completed and certified promissory note authorization-letter in the amount of advance payment (if agreed) and usually 10% of the contracted price as performance guarantee, with a “no protest” clause, as well as a copy of the card of deposited signatures of the person(s) authorized to dispose of the Contractor’s funds and a certificate of registration of the promissory note with the National Bank of Serbia. The validity period of the advance payment and performance promissory note(s) is usually 30 (thirty) days longer than the deadline for completion of the contracted works.

In respect of defects notification period, the standard practice is the same as above. The only item which differs is the amount of promissory note, which corresponds to 5-10 % of the contracted price. Issuance of such promissory note is usually Contractor`s obligation and is usually a precondition for signing of the taking over certificate. Such promissory note is issued for the period which extends to a number of days (e.g., 20 days) after the relapse of the defects liability period (usually 2 years after the taking over of works is performed). Other option is withholding the retention money from each interim payment certificate, in the amount that is usually 10% of the price of each certificate i.e., in the total amount of 10% of the whole contracted value of works. Withheld retention money would be released after expiry of the defects liability period or after the delivery of relevant promissory note or bank guarantee.

When it comes to contractual penalties for delays, usually it is foreseen in construction contracts, that Contractor shall pay 0.1 % or 0.2 % of the contract price per day of delay whereas the maximum amount of the penalty shall not exceed 10% of the total contracted price for works. The delays may be calculated in respect of agreed milestones or in respect of final date.

Limitation of maximum amount of penalties is not defined in the legislation, but as per the court practice the maximum amount of penalties should not exceed 10%.

There is no separate law regulating payments in the construction industry. Apart from the Serbian Law on Contracts and Torts, relevant are also the Serbian Law on the Execution of Payments of Legal Persons, Entrepreneurs and Natural Persons not Performing a Commercial Activity, the Serbian Law on Deadlines for Settlement of Monetary Obligations in Commercial Transactions, and the Serbian Law on Payment Services. It is also important to note that a contract between business entities cannot provide for a deadline for the settlement of financial obligations longer than 60 days. However, a longer term than 60 days may be contracted if the contractual obligations require payment in instalments for delivered goods or services, but that term cannot be longer than 90 days. Also, a contract between business entities can provide for a longer period than 60 days, with the obligation that the debtor, i.e., the recipient of the delivered goods, i.e., the provided services, ensure payment within the agreed period by handing over to the creditor a bank guarantee that contains the clauses: “irrevocable”, “unconditional”, “collectible at the first call without objection” or promissory notes validated by the bank as a form of security for debt collection.

Yes, such clauses are permitted and are frequently used between contractors and subcontractors within the so-called “back-to-back” contractual provisions.

These clauses are well known burden to the subcontractors. However, they are often challenged by subcontractors with reference to the mandatory deadlines for the payment in commercial transactions, as explained above.

Under Serbian contract law, the parties are free to negotiate price payment and thus retention clauses are permitted and valid. There are no specific provisions regarding retention in the construction contract model offered in Serbian Law on Contracts and Torts. However, the parties can, for example, agree on application of the Special Construction Customs which set out construction business practices. These Customs regulate retention in Articles 66-69, but the parties are free to amend these rules as they see fit. They provide that the Employer has an option to keep a proportional part of the price (retention money) until the expiration of the warranty period, i.e. until the defects are cured. If the contract stipulates that the Employer shall keep the retention money to ensure the defects are remedied, but does not specify to which defects it applies, the Special Construction Customs presume that the retention applies to defects detected during the take-over. However, the Employer can use the retention money to remedy defects in the performed works if the Contractor does not remove the defects within a reasonable time upon his written request. The Employer shall return the retention money within 8 days after the take-over date, i.e., after the Contractor has remedied the defects.

When it comes to the business practice, note that retention clauses are usual in construction contracts governed by Serbian law. Our experience shows that the parties usually provide that the employer is entitled to keep 5% of the price (going up to 10%) as retention.

Articles 270-276 of Serbian Law on Contracts and Torts regulates penalties which, prima facie, have the same meaning as the liquidated damages. In that view, a few points should be highlighted.

First, inclusion of penalties in contracts governed by Serbian law is common and the courts regularly uphold them. Under this Law, the parties are free to determine that the party is entitled to the specific amount or other material benefit in case the other party fails to perform its obligation or when it’s in delay (presumed if not stated specifically which type of penalties is agreed). However, Serbian law provides the courts with possibility to reduce the penalties whenever find that it is excessively high compared to the value and significance of the subject of obligation.

Another noteworthy restriction is that penalties are allowed only for non-pecuniary obligations.

Furthermore, if the contract is terminated, the creditor is entitled to penalties only if he previously reserved the right to request them upon the contract termination. Finally, the right to claim penalties ceases to exist after the takeover of the works or services that were in delay.

Also, it should be noted that under the Serbian law, when the creditor suffers loss that is greater than penalties agreed, the creditor is entitled to the difference between the loss and penalties. This in particular means that there is a noticeable difference between the usual meaning of penalties in the meaning under the Serbian law and liquidated damages as fixed figure of recoverable damages in international practice. In Serbian Law on Contracts and Torts liquidated damages are envisaged as special kind of penalty to the debtor (similar to the French Civil Code which provides so called clause pénale).

However, the parties are free to determine the highest amount of compensation for damages, unless such amount is in obvious disproportion to the damage and unless the law provides otherwise for the specific case.

Serbian Law on Contracts and Torts recognizes both limitation and exclusion of liability. Even so, the creditor shall always be entitled to full redress in case of debtor’s wilful misconduct and gross negligence.

Moreover, in case of limiting the liability, clauses entitling one party to ask for a specific limited amount are valid, but only if they are not in obvious disproportion to the damage and if the law does not provide otherwise for a specific case.

The parties can agree on specific reasons for termination, including the termination for convenience. Therefore, in general termination for convenience shall be specifically included in the contract unless it is provided specifically for the contract model at hand. It should be noted that if the contract is concluded for indefinite period and concerns long-term relationship, the Law on Contracts and Torts provides that each party to the contract can cancel the contract at any time (but not in the inconvenient time).

As mentioned, some specific contract models in Law on Contracts and Torts provide termination for convenience. This is the case with the supply of services contract applicable to the construction contracts as lex generalis (the construction contract model does not deal with termination for convenience, and therefore this provision is relevant for construction contracts unless the parties provide something different). However, the supply of services model provides that the Employer is entitled to terminate the contract at his convenience before the services are completed. However, in such case Employer is obliged to compensate the Contractor, to pay him the agreed sum reduced by the amount of costs not incurred by the Contractor which would otherwise occur if the contract was still valid, alongside any earnings realized by the Contractor accepting other jobs, including those he intentionally omitted to accept.

Moreover, Law on Contracts and Torts provides specific rules on some general reasons for termination, including termination due to the delay in performance. The Law on Contracts and Torts provides that the party wanting to terminate the contract due to the delay must leave subsequent reasonable period to the other party to perform its obligation. However, if the deadline is defined as an important contractual term, the contract is terminated automatically if the debtor does not fulfil its obligations in time.

The Law on Contract and Torts also deals with termination for unfulfillment of contractual obligations. The Law on Contract and Torts allows the creditor to choose between terminating the contract and requesting from the other party to fulfil its obligations subsequently. However, the contract cannot be terminated in case of unsubstantial unfulfillment.

Furthermore, the Law on Contracts and Torts provides specific rules for termination for so called changed circumstances. This is the only judicial termination in Serbian contract law. This means that the party relying on the changed circumstances that occurred after the contract conclusion can request from the court to terminate the contract. The parties can waive their right to rely on this reason, unless that is contrary to the principles of good faith and fairness.

When it comes to the force majeure, note that the Law on Contracts and Torts provides mandatory rule stating that the debtor shall not be liable upon proving his inability to perform the obligation, or that his delay in performing the obligation, was due to the circumstances taking place after the contract conclusion which he was unable to prevent, eliminate or avoid.

There are no specific rights which are commonly granted to third parties. In general, Serbian legislation provides for a general possibility to stipulate an obligation for the benefit of the third party in the contract. After the third party accepts this, it can demand the fulfilment directly from the debtor. In other cases, the contract is binding between the parties who concluded it.

Such notifications are not common for contracts governed by Serbian law. Any mandatory rules dealing with requests and deadlines for those requests are usually stipulated in legislative acts, i.e. in Law on Contracts and Torts. Particularly, there is a provision of Serbian Law on Contracts and Torts stipulating that only mandatory rules laid down in legislative acts may introduce preclusive deadlines. In other words, the law does not provide for a such possibility to be introduced by contract.

As mentioned earlier, this becomes controversial topic whenever construction projects are based on FIDIC general conditions, especially subclause 20.1 dealing with claims and notifications of claims not later than 28 days after the event giving rise to such claim. There is an ongoing discussion concerning this issue in Serbian legal society.

However, one should bear in mind that Serbian Law on Torts provides specific limitation for application of general terms and conditions at Serbian market. Namely, the court may deny application of specific provisions of the general terms and conditions precluding the other party to raise demurrers, or of those on the ground of which such party is left without contractual rights or loses time limits, or those which are otherwise unjust or excessively strict towards such party.

Also interesting, especially nowadays when the global market faces various turbulences, are provision of law regulation price change and time extension. For example, when it comes to the supply of service contract model, the Law on Contracts and Torts provides that the Contractor shall not be liable for delay caused by the Employer’s failure to deliver the material on time, the Contractor’s demand for alterations, or by the Contractor’s failure to pay the advance due and, in general, for delay caused by the conduct of the Contractor. This means that in cases described, the Contractor is entitled to extension of time.

Moreover, the construction contract rules in the Law on Contracts and Torts on the other hand contains various provisions related to the change of price. It provides that unless otherwise stipulated, the Contractor that performs his obligation is entitled to the increased price for completed works, if in the period between entering into contract and its fulfilment, the prices of detrimental elements had changed to such extent that it would be necessary to pay the price higher in the amount of two percents. Also, even when the price is fixed, in case where after the contract conclusion the prices of detrimental elements are raised, the Contractor is entitled to the change of price of the works, if the prices of the elements had been changed to such a degree that it is necessary to determine the price of works in the amount higher by more than ten percent.

It is usual business practice in construction to provide following types of insurance:

• Contractors All Risks CAR insurance
• Insurance of equipment and materials
• Professional liability insurance
• Third-party insurance

Serbian Law on Planning and Construction provides that the designer, the contractor, and professional supervision are obliged to secure professional liability insurance (for legal persons insured amount is EUR 50.000,00 and for entrepreneurs it is EUR 15.000,00).

Typically, both litigation and arbitration are used for construction disputes. When drafting contracts, we mainly include arbitration clauses since our experience confirms that arbitration is more suitable for construction disputes because of their complexity, dispute value and the usual duration of proceedings before courts.

In Serbia there are three arbitration institution: The Permanent Arbitration at the Chamber of Commerce and Industry of Serbia, Belgrade Arbitration Centre and Construction dispute Resolution Centre. However, it is not unusual to agree on arbitration administered by international arbitration institutions (e.g., ICC, LCIA, SCC).

Beside those, mediation is another alternative dispute mechanism available in Serbia. A mediator is a neutral person who helps the parties to come to an agreement in relation to the dispute at hand. A mediator’s position can be formal or informal and that person does not render a decision that is binding. A mediator rather helps the parties to find the solution by themselves.

Finally, whenever it comes to international contracts for construction, especially those based on FIDIC general conditions, DAB is common pre-arbitration procedure for resolving construction disputes. The interesting fact about DAB decisions is that they are not enforceable before Serbian courts, and thus the parties may avoid this procedure and bring their claims directly to arbitration.

In Serbia, arbitration is common, and we have detailed legal framework when it comes to arbitration. In that regard, note that Serbia adopted UNCITRAL-Model-Law based Law on Arbitration in 2006 and that it is a party to the New York Convention (Convention on the Recognition and Enforcement of Foreign Arbitral Awards).

There is no official statistics providing sufficient information on how supportive the local courts are of arbitration, but we do have data stemming from articles written by leading arbitration scholars in Serbia. For example, a paper written 20 years ago concludes that non-recognition and annulment of arbitral awards is uncommon in Serbia. However, legal doctrine also shows that local judges don’t have profound knowledge of arbitration law and can sometimes adopt decisions that are inconsistent with international practice in arbitration and the idea behind alternative dispute settlement mechanism. This can create legal uncertainty because court decisions on recognition of foreign awards and annulment of domestic ones can go either way.

Moreover, there is no official data showing the length of enforcement proceedings, especially having in mind that all three court instances in Serbia are available in the annulment proceedings which delays enforcement of the arbitral award. However, the availability of all three instances is also somewhat vague according to domestic case law dealing with recognition having in mind that Serbian Supreme court found that revision by Supreme Court is not available in cases of recognition of decisions of foreign courts even though Serbian law does not explicitly exclude this possibility. Given that the position of the Supreme Court has been criticized recently, it is unknown whether the Supreme Court is going to change its position and allow revision. We mention this here because this uncertainty can impact the efficiency of the recognition proceedings and thus enforcement. When it comes to the annulment, it should be noted that one case that ended by Supreme Court rendering a controversial decision, the proceedings lasted for seven years.

Serbian Law on Contracts and Torts contain mandatory provisions on unenforceability due to statute of limitations that cannot be amended by contracts. The Law provides that the general period in which the creditor can request fulfilment of an obligation is 10 years, but in case of contractual claims of legal persons (corporate bodies) in the sphere of sale of goods and services, this period is 3 years. However, it should be noted that after this period the creditor is not precluded from bringing his claim before the local court, i.e., the court will not automatically reject his claim. On the contrary, the court will continue to argue the merits of the claim unless the debtor files a limitation objection.

In general, filing a claim after some period is not precluded by procedural rules. In other words, procedural laws only exceptionally provide that the applicant shall be precluded from filing a claim if he doesn’t do so in some specific period (e.g., possession claims). If the applicant files its claim after this period, the court will reject it as untimely without discussing the merits.

Under the Serbian procedural law, there are two parties in the dispute – claimant and defendant. However, the law allows co-litigators, i.e., more than one person acting as claimant and/or as defendant.

The matter of liability is merits-based issue. Serbian Law on Contracts and Torts provides that all persons acting as a debtor in a commercial contract shall be jointly and severely liable for the fulfilment of their divisible obligation to the creditor, unless otherwise stated in the contract. This means that the party suffering the loss can sue any debtor and each will be 100% liable for damages, whatever his share of the blame. In the end, a judgment-obliged debtor may recover from all other debtors the portion he fulfilled on each of their behalf.

Note that all debt shares are presumed equal, but the parties are free to allocate their liability differently in their contract, while the different share portion can also result from the legal relations of the parties.

Serbia awaits important amendments to the Law on Planning and Construction, which will soon enter parliamentary procedure. These amendments are mainly aimed at ensuring greater transparency and certainty, facilitating the procedure of issuing building permits, and accelerating the adoption of green construction practises.

One of the most important changes is abolishing of the conversion of construction land and associated fee. This will make privatization of former public companies easier and more attractive to potential investors.

The Law will include new obligations for the employer to ensure greater safety. In that regard, the employer will be obliged to secure third-party insurance prior to notice of works. Also, before obtaining building permit, the employer will have to provide proof that he took steps to dispose of construction waste.

When it comes to the green construction practices, every public facility and every other building covering an area greater than ten thousand square metres will have to possess a green construction certificate. Furthermore, Serbia is committed to reducing emissions of harmful gases, and because of that railway infrastructure projects imply further the electrification of rail lines. This shows that there is a great opportunity for investments in the construction and reconstruction of intermodal terminals.

However, the economy is extremely sensitive to all the disruptions happening globally, especially the construction industry. Therefore, great disruptions in the prices of logistics and construction materials are evident and it renders the economy vulnerable.

All the abovementioned projects are attracting a lot of investments, particularly in fields of roads and rail infrastructure and mining sector which are predominantly platform for foreign investments. From the other side, the commercial property construction is still in the bloom and is dominant when it is about of domestic, private investments.

Given the announcement of transitioning to green energy practices, we understand that Serbia expects to eliminate use of greenhouse gases in construction industry and therefore switch to more environment friendly technologies. Therefore, use of electricity is more and more noticeable as the main energy resource.

In 2022, the post-COVID recovery of 2021 began to fade, and Serbia continued to ensure its economic growth. However, the war in Ukraine brought new problems and increase in energy prices and slowdown in global growth evidently slowed down Serbia on its economic prosperity path.

Even though World Bank data shows that despite major domestic and external challenges growth in Serbia continued throughout 2022, it also shows that inflation, driven by food and energy prices, accelerated more rapidly than projected reaching 13.2 percent in August. Furthermore, the fiscal deficit turned lower than anticipated, thanks to a strong performance of revenues, while public debt remains around 57 percent of GDP.

The growth projections over the next couple of years remain unchanged, but one should be sceptical when expecting significant improvement due to the major increase in imports in the future.